Nippon Soda Group Integrated Report 2020

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Nippon Soda Group Integrated Report 2020
Nippon Soda Group

                                                              Integrated Report 2020

For inquiries, views, and comments regarding the Integrated
Report 2020, please contact us via the following website.

Corporate Communication Section, General Affairs
Department, Nippon Soda Co., Ltd.
2-2-1, Ohtemachi, Chiyoda-ku, Tokyo 100-8165
Tel: +81-3-3245-6056 Fax: +81-3-3245-6238
Nippon Soda Group Integrated Report 2020
Mission of the Nippon Soda Group                       Contents
                                                       Value Creation of the Nippon Soda Group
                                                       History of Value Creation                                             2

Create new value through the power of chemistry and
                                                       Message from the President                                            4
                                                       Value Creation Model                                                 10
                                                       Source of Value Creation                                             12

                                                       Explanation of Strategy

increase corporate value by contributing to society.   Explanation of Strategy
                                                       Long-Term Vision
                                                       Megatrends and Materiality for

                                                           Increasing Corporate Value                                       20
                                                       Business Strategy                                                    22
                                                       Materiality Feature                                                  24
                                                       The Nippon Soda Group’s Businesses                                   28

                                                       Foundations for Value Creation
                                                       ESG Management                                                       42
                                                       Human Resources Strategy                                             44
                                                       Environmental Protection                                             48
                                                       Process Safety and Disaster Prevention                               50
                                                       Occupational Safety and Health                                       51
                                                       Logistics Safety and Quality Assurance                               52
                                                       Chemicals and Product Safety                                         53
                                                       Relationship with Local Communities
                                                           and Dialogue with Society                                        54
                                                       Corporate Governance                                                 55
                                                       Compliance                                                           60
                                                       Internal Controls                                                    61
                                                       Business and Other Risks                                             62
                                                       Messages from Outside Directors                                      63
                                                       Directors and Executive Officers                                     64
                                                       Financial Data and Corporate Data
                                                       10-Year Financial and Non-financial Highlights                       66
                                                       Financial Review                                                     68
                                                       Consolidated Balance Sheets                                          72
                                                       Consolidated Statements of Income                                    74
                                                       Consolidated Statements of Comprehensive Income                      75
                                                       Consolidated Statements of Changes in Equity                         76
                                                       Consolidated Statements of Cash Flows                                77
                                                       Company Information /
                                                           Shareholder and Investor Information                             78

                                                       Editorial Policy
                                                       Integrated Report 2020
                                                       comprehensively conveys the
                                                       corporate value of the Nippon
                                                       Soda Group and its medium- to
                                                       long-term goals, both financial and
                                                       non-financial. When producing
                                                       this Integrated Report, we strove
                                                       to provide an easy-to-understand
                                                       overview of our value creation
                                                       process by referring to the Guidance for Collaborative Value
                                                       Creation of the Ministry of Economy, Trade and Industry. From 2020,
                                                       Nippon Soda has replaced the conventional CSR Report with the
                                                       Integrated Report. The ESG information listed in the CSR Report
                                                       is now posted on the Nippon Soda website in a new document
                                                       entitled ESG Data Book.

                                                       Forward-Looking Statements
                                                       The Integrated Report lists forward-looking plans and strategies,
                                                       as well as forecasts and outlooks for business performance. Please
                                                       note that various factors may cause actual results to differ from
                                                       these forecasts and outlooks.

                                                                            Nippon Soda Group Integrated Report 2020             01
Nippon Soda Group Integrated Report 2020
History of Value Creation

                                                                                                                                                                                                                                                   Value Created
           Since its founding in 1920, the Nippon Soda Group has diversified into business fields such as agriculture, healthcare,
           the environment, and information. Furthermore, we have successively created products that meet the needs of the                                                                                                                Research                                                          Organizations
           times. By using the power of chemistry to solve the issues facing society and by creating value with an eye on the                                                                                                        and development                                                         and human
           future, we will continue to contribute to the creation of a society in which every person can live with peace of mind.                                                                   Multiple businesses                and production                                                      resources with
                                                                                                                                                                                                                                      technology that                       Global network
                                                                                                                                                                                                     in niche domains                                                                                      high awareness
                                                                                                                                                                                                                                     create long-selling                                                    toward social
                                                                                                                                                                                                                                          products                                                          contributions

                                                                                                                                                                                                                                                                     Net sales for the
           Founder Tomonori Nakano received a
           patent for the Nakano method of salt
                                                                    Started production of the
                                                                    pharmaceutical additive NISSO HPC
                                                                    Started production of the fungicide
                                                                                                                    Started production of the resin additive
                                                                                                                    Started operations at the Nisso Kasei Chiba
                                                                                                                                                                                                    *                                                                fiscal year ended
                                                                                                                                                                                                                                                                     March 31, 2020                ¥144.7 billion
                                                                    TOPSIN (thiophanate)                            Plant (currently the Chiba Plant; Ichihara City,
                  1920                                              Started operations at the Mizushima             Chiba Prefecture)
                Established Nippon Soda Co., Ltd.                   Plant (Kurashiki City, Okayama
                for business activities related to the              Prefecture)
                manufacturing of caustic soda and                   Established the Agrochemical
                bleaching powder                                    Synthesis Research Laboratory
                Started operations at the Nihongi                   (Odawara City, Kanagawa Prefecture)
                Plant (Joetsu City, Niigata Prefecture)
                                                                                                                          Began capital participation in Iharabras
                                                                                                                          S.A. Industrias Quimicas (Brazil)                                                                                       2002
                                                                                                                                                                                                                                                Established the R&D Laboratory for High-Functional
                                                                                                                                                                                                                                                Materials (Ichihara City, Chiba Prefecture)

                                                                                                                                                                                        1995                                                      Acquired the agrichemical business of Dainippon Ink
                Nihongi Plant                                                                                                                                                                                                                     and Chemicals (currently DIC)
                                                                                                                                                                                      Started production of the insecticide MOSPILAN
                                                                    Agrochemical Synthesis Research                                                                                   (acetamiprid)
                            1934                                                                                                                                                                     1997                                                                2010
                          Started operations at the                                                                                                                                                Started production of the semiconductor photoresist                Established the Chiba Research Center (Ichihara City, Chiba
                          Takaoka Plant (Takaoka City,                                                                                                                                             material VP-POLYMER                                                Prefecture)
                          Toyama Prefecture)                                                                                                                                                       Jointly developed the next-generation Faropenem-                   (Integrated the R&D Laboratory for High-Functional Materials
                                                                                                                                                    1984                                           sodium antibiotic together with Suntory Ltd. and                   and the Production Technology Department of the Chiba Plant)
                                                                                                                                                  Established the R&D                              Yamanouchi Pharmaceutical Co., Ltd. (currently Astellas
                                                                                                                                                  Laboratory for Functional                        Pharma Inc.), and started production of Faropenem-
                                                                                                                                                  Materials (Ichihara City,                        sodium antibiotic.                                                         2011
                                                                                                                                                  Chiba Prefecture)                                                                                                         Established Nisso Namhae Agro Co., Ltd., a joint
                                                                                                                                                                                                                                                                            venture manufacturing company for active agrochemical
                                                                                                                                                  Established the Odawara
                    Changes in                                                                                                                    Research Center (Odawara
                                                                                                                                                                                                                                                                            ingredients, in South Korea
                                                                                                                                                                                                                                                                            Purchased Alkaline SAS, a French chemicals manufacturer
                    net sales                                                                                                                     City, Kanagawa Prefecture)

                    * Due to a change in accounting                                                                                                                                                                                                                                                    2018
                       standards, net sales changed from                                                                                                 1991
                                                                                                                                                                                                                                                                                                       Purchased the plant health
                       non-consolidated (Nippon Soda Co.,                                                                                              Participated in the
                                                                                                                                                                                                                                                                                                       business of Zoetis Japan
                       Ltd.) to consolidated as of 1999.                                                                                               establishment of Novus
                                                                                                                                                       International, Inc. (USA)
                                                                                                                                                                                                    Faropenem-sodium          VP-POLYMER

                     1920                                   1945                                             1970                                                                  1995                                                                                                                                               2020
                       Founding Period                                       Early Period                                           Growth Period                                                                                          Development Period
                                (1920 to 1944)                                  (1945 to 1969)                                            (1970 to 1994)                                                                                                 (1995 to 2020)
Changes at the
 Nippon Soda              As the demand for                         In order to respond to social changes
    Group            domestic chemical products                      during the period of high economic                                                                                                                                 Looking to the future,
                                                                                                                             We promoted product development
                       increased, Nippon Soda                           growth, Nippon Soda embraced                       utilizing technology and established new                                                     the Nippon Soda Group creates new value and solutions,
                       adapted to the progress                        the challenge of development and                          growth fields in an uncertain era.
                       of science and drove the                       commercialization in various fields,                                                                                                                        and promotes further globalization.
                     industrialization of research.                    including existing and new fields.

                      1914 to 1918        1929       1939 to 1945      1954 to 1973                                   1973         1978            1985                                                                                                       2008                       2012                                            2020
Social Trends
                        World War        Great        World War       Period of high                                 First oil   Second oil        Plaza                                                                                                 Financial crisis              European                                       COVID-19
                            I          Depression         II         economic growth                                  crisis       crisis         Accord                                                                                                                             currency crisis                                  pandemic

   02    Nippon Soda Group Integrated Report 2020                                                                                                                                                                                                                                                      Nippon Soda Group Integrated Report 2020   03
Nippon Soda Group Integrated Report 2020
Message from the President

                                                                                     First of all, as the world continues to be impacted by            recovery of people infected by COVID-19 and the end of
                                                                                     COVID-19, I would like to offer my heartfelt sympathy to          the pandemic.
                                                                                     the families of those who have died. I pray for the early

                                                                                     Deep Gratitude for the Last 100 Years and Determination for the Next
                                                                                     100 Years

                                                                                     Nippon Soda celebrated its 100th anniversary in 2020. This        our company as being comprised of “Good people doing
                                                                                     milestone was made possible thanks to the support of all          good work.” As embodied by this statement, Nippon
                                                                                     stakeholders, including shareholders, investors, business         Soda has overcome adversity through the united efforts
                                                                                     partners, employees including those of Group companies,           of all executives and employees. Even in the midst of
                                                                                     and local communities. For this, I am extremely grateful.         adversity, we have actively adopted innovative technology.
                                                                                     Moving forward, as a chemical manufacturer with operations        We are proud of how we have advanced our research and
                                                                                     that are essential for achieving a more prosperous life, we       development and used the power of chemistry to support
                                                                                     will strive to increase our corporate value with renewed          the development of society.
                                                                                     determination.                                                       Even upon having reached our 100th anniversary, we
                                                                                        Since our founding in 1920, Nippon Soda has expanded           will never become complacent; instead, we will invigorate
                                                                                     its business in various fields such as agriculture, healthcare,   our activities and continue to contribute to society through
                                                                                     the environment, and information, and has launched diverse        chemical technology. As we start the next 100 years, we
                                                                                     products that meet the needs of the times. Starting with          have formulated the Nippon Soda Group Long-Term Vision
                                                                                     caustic soda, which was our main product at the time of           “Brilliance through Chemistry 2030.” This Long-term Vision
                                                                                     our founding, we have used the power of chemistry to              incorporates the future as envisioned by the Group and
                                                                                     create new value and have contributed to society through          strategies for achieving that future.
                                                                                     our products. Our founder Tomonori Nakano described

                                                                                     Reflecting on the Previous Medium-Term Business Plan

                                                                                     During the three-year period from the fiscal year ended           of 6.5%) and ROE (return on equity) was 4.8% (compared
                                                                                     March 31, 2018 to the fiscal year ended March 31, 2020,           to the target of 7.0%), so we didn’t achieve either target.
                                                                                     sales of some products fell due to the impact of trade            This was due to an increase in costs for the commissioned

       The Nippon Soda Group has evolved over 100 years of                           friction between the US and China. The tightening of
                                                                                     environmental regulations in China has also significantly
                                                                                                                                                       testing of new pesticides, lack of progress in initiatives such
                                                                                                                                                       as M&A and other projects, and a decrease in the profits

       turbulent change and has contributed to society through                       affected the Nippon Soda Group. For example, operations
                                                                                     were suspended at many plants in China, and the supply of
                                                                                                                                                       of Novus International, Ltd., which had contributed to the
                                                                                                                                                       improvement of our financial structure and the Group’s

       the power of chemistry. This experience will serve as
                                                                                     products and materials has stopped.                               business performance.
                                                                                        Regarding the planned investment of ¥50 billion over a            Furthermore, in response to the COVID-19 pandemic
                                                                                     three-year period, we made growth investments to increase         that began to spread from the beginning of 2020, our Head
       an invaluable asset for our Group going forward.                              the production of the pharmaceutical additive NISSO HPC           Office, branch offices, and research institutes implemented
                                                                                     and semiconductor photoresist material VP-POLYMER, both           measures such as teleworking and staggered commuting
       We will continue to create new value for the                                  of which sell well. In terms of investing in maintenance and      times. At our manufacturing sites, we have taken necessary
                                                                                     renewal, we decided to make decisions based on a careful          measures in accordance with the guidelines of each
       next 100 years while responding flexibly to the                               examination of business feasibility. Even so, we ultimately       applicable prefecture. Our sites have been operating almost
                                                                                     made investments that were essentially on the same scale as       as planned. Moving forward, there is an urgent need for
       changing times.                                                               the initial plan. Regarding M&A, we acquired the plant health     business reforms that utilize AI and IoT, and for Company-
                                                                                     business of Zoetis Japan Corporation.                             wide workstyle reform. In response, we established the
                                                                                        Although sales were strong overall, ROS (return on sales,      DX Promotion Group in April of this year and plan to do
                                                                   Akira Ishii       or operating margin) was 5.6% (compared to the target             research into more efficient workstyles.

                                                Representative Director, President

04   Nippon Soda Group Integrated Report 2020                                                                                                                                     Nippon Soda Group Integrated Report 2020   05
Nippon Soda Group Integrated Report 2020
Although developing agrochemicals is a time-consuming             profitability and efficiency. Furthermore, the Nippon Soda
       Formulation of New Long-Term Vision: Megatrends and Business Domains                                                               process, we have been able to launch three new products*          Group will invest ¥30 billion in new businesses and conduct
                                                                                                                                          in succession. Because of the new launches and the                capital investment for increasing production. We will work
       Until now, from time to time the Nippon Soda Group has            products and high added-value service functions in               celebration of our 100th anniversary, a big milestone, we         to achieve a dividend payout ratio of 40%, with an annual
       used the slogan of “speed and change.” Today, society             multiple domains. In view of these strengths, it is time for     took the opportunity to announce our Long-Term Vision.            dividend of ¥80 per share as the lower limit for shareholder
       and economies worldwide are undergoing drastic changes.           the Group to capture business opportunities in a broader            First, in our Medium-Term Business Plan “Brilliance            returns. We also plan to promote shareholder returns
       Amidst such trends, every company needs to adapt with             range of fields.                                                 through Chemistry Stage I” which started from April of            through the flexible acquisition of treasury stock.
       rapid speed. In addition, in the face of numerous issues             When formulating our new Long-Term Vision, we began           2020, we are targeting profit of ¥7 billion and ROE of 5%         * The fungicide PYTHILOCK (picarbutrazox) (also known as NAEFINE and
       such as global environmental problems including food              by considering how to decipher various global trends. As in      in the period under review. By using the ROIC (Return on             QUINTECT), the acaricide DANYOTE (acynonapyr), and the fungicide
                                                                                                                                                                                                               MIGIWA (ipflufenoquin) were all developed in-house.
       shortages due to population growth, abnormal weather              the past, we remain committed to our policy of accurately        Invested Capital) tree analysis, which we introduced in the
       due to climate change, and marine plastic waste, we need          ascertaining people’s needs and delivering the required          previous Medium-Term Business Plan, each department
       to rethink all styles of life and increase our awareness in the   products and services to the world. We have also assessed        will work to achieve its goals by continuously improving
       face of threats such as the COVID-19 pandemic.                    the way in which the Group’s businesses should operate
          When examining domestic conditions in Japan, it is             amidst global trends, and identified the importance of
       clear that a number of diverse issues need to be addressed.       creating and providing new value in all domains based on         Initiatives for the Four Materialities: Responding to New Needs
       These issues include the declining birthrate and aging            the advantage of our proprietary technologies. The Group
       population, the growing problem of medical expenses, and          has identified the following four megatrends: 1) population
                                                                                                                                          Among the four materialities to be addressed in our Long-         advantage of being applicable and essential to various
       an increase in health consciousness. Moreover, it is highly       growth and global warming, 2) improvement in living
                                                                                                                                          Term Vision, our goal in the agriculture field is to contribute   fields. In Japan, labor shortages have created the need
       probable that values and lifestyles will continue to change       standards and social security cost issues, 3) achievement
                                                                                                                                          to ensuring food safety and security, and to achieving            to improve the efficiency of agriculture. It is believed
       and diversify with even greater speed. Concurrently, there        of a sustainable society, and 4) progress in information and
                                                                                                                                          sustainable agriculture. Although Japan has a declining           that trends for utilizing ICT technology in agriculture will
       will be a significant increase in demand for ICT (information     communication technologies. We have also positioned the
                                                                                                                                          birthrate, the worldwide population is increasing. Higher         continue to advance.
       and communication technology) that supports this                  four fields of agriculture, healthcare, the environment, and
                                                                                                                                          safety is required for agrochemicals applied to crops.                Of course, as a manufacturer, the Nippon Soda Group
       diversification. Even though its main focus is on chemicals,      ICT as materialities (important issues) for increasing the
                                                                                                                                          However, at the same time, highly effective fungicides,           has been engaged in environmental measures during
       the Nippon Soda Group possesses high-performance                  corporate value of the Nippon Soda Group.
                                                                                                                                          pesticides, and herbicides are needed to secure more              the manufacturing process of all its products. In the
                                                                                                                                          food. The Nippon Soda Group has established a structure           environmental domain, we provide environmental solutions
                                                                                                                                          that enables all processes to be performed in-house, from         that utilize technologies for adsorbing and removing
       Our Vision 10 Years in the Future: Transitioning to Management That Emphasizes Efficiency                                          research and development aimed at pursuing new compounds,         harmful substances, including the water treatment
                                                                                                                                          establishment of manufacturing methods, and production/           technology and resource recycling technology obtained
       The Long-Term Vision defines our vision 10 years in the           to steadily implement measures for achieving our targets         formulation of active ingredients utilizing organic synthesis     through our environmental measures.
       future as fulfilling the mission: “Create new value through       and goals. The Nippon Soda Group possesses a variety of          technology. Demand for agrochemicals is expected to remain            Although the Nippon Soda Group has several unique
       the power of chemistry and increase corporate value by            businesses backed by its proprietary technology, and has a       strong in the future, and the Nippon Soda Group will continue     technologies, the failure to fully utilize those technologies
       contributing to society.” As a basic strategy, we decided         profit base that can withstand various risks. In order to make   its ceaseless efforts for developing new active ingredients in    has been an issue. In responding to needs in a broad
       to emphasize investment efficiency (ROI). We are working          further use of this strength that we refer to as “Nippon Soda    order to contribute to the worldwide food supply.                 range of areas, we have handled numerous themes. There
       to reform our business portfolio with the aim of creating         Group Technology,” I want to enhance our R&D and expand             In the healthcare field, we possess the pharmaceutical         have been times in which we took on new challenges
       a highly efficient business structure through growth              it to peripheral development of existing technology.             additive NISSO HPC, a product that is highly regarded in          without delving sufficiently into the business aspects of
       investment and structural reform. By accelerating the                We will work to thoroughly increase the efficiency of         the industry. The cellulose derivative that is a component        technology utilization. From the perspective of improving
       expansion of high added-value businesses with high profit         our management, research, production, sales, and supply          of NISSO HPC possesses excellent safety specifications. As        profit efficiency, which is the basic strategy of the Long-
       margins and the liquidation of unprofitable businesses,           chains in an effort to strengthen cost competitiveness. We       such, the application of NISSO HPC has begun in the food
       we will promote thorough management efficiency. The               will also strive to further expand our overseas businesses by    products field (supplements), and Nippon Soda is preparing
       Nippon Soda Group’s strategy is to generate stable cash in        promoting the development of new markets. Our overseas           to increase production capacity to meet the demand. In
       our existing businesses, create new value in growth fields,       sales ratio has always been high, coming in at 33% (fiscal       conjunction with rising health consciousness, there are
       and raise our profit efficiency to more than double the           year ended March 2020). Nevertheless, in the future, we          increasing expectations for technologies that make it
       current level. Furthermore, we will increase corporate value      will select target areas for expansion in anticipation of        easy to take supplements, thus meeting the needs of the
       by proactively implementing measures that emphasize               further market growth. Furthermore, in order to promote          healthcare field for a “healthy life to all people.”
       a balance between investment in growth fields and                 innovation and increase our sophistication, we intend to            In the ICT field, we utilize precision polymerization
       shareholder returns. The management indices that we strive        actively cooperate with external parties, as well as deepen      technology and organic synthesis technology to provide
       to achieve by 10 years from now are ROS of 10% or higher,         and integrate our proprietary technologies.                      high-performance resins for communication equipment
       ROA of 7% or higher, and ROE of 8% or higher.                        We had already begun to consider these strategies             materials and semiconductor photoresist materials. In the
          The Nippon Soda Group plans to divide the 10 years of          while promoting the previous medium-term business plan.          future, there are expectations for heightened demand
       our Long-Term Vision into three stages, Stages I to III, to       We have been making preparations while keeping track             as full-scale introduction begins for the next-generation
       formulate a Medium-Term Business Plan for each stage, and         of trends in the business environment and current issues.        communication system 5G. Additionally, ICT has the

06   Nippon Soda Group Integrated Report 2020                                                                                                                                                                                                                                       07
Nippon Soda Group Integrated Report 2020
Term Vision, we will not insist on self-reliance; instead, we    technologies in partnership with other companies. I also           Nippon Soda is implementing personnel measures that               mid-career hires attend the entrance ceremony of newly
     will explore the utilization and development of technology       believe that it is important to make more effective use of         will trigger a change in thinking; for example, dispatching       hired graduates. The fluidity of human resources is expected
     in collaboration with external parties, and will increase the    our proprietary technologies by strengthening their linkage        engineers to university laboratories to engage in industry-       to increase in the future. By flexibly responding to diversity,
     sophistication of technology by incorporating peripheral         to the development of our business.                                academia collaboration and giving them the experience             the Nippon Soda Group aims to create a bright and vibrant
                                                                                                                                         of being stationed overseas for work from a young age.            workplace environment, where ideas can be shared across
                                                                                                                                         Furthermore, we are working to secure the required human          organizations, and where vitality is the norm.
     Building on the Intertwined Concepts of Corporate Value and Social Value                                                            resources through mid-career hires.                                  Additionally, in order to instill our Long-Term Vision, it
                                                                                                                                            Our overseas sales ratio is high, and we are actively hiring   is necessary for all Group companies to work together to
                                                                                                                                         foreigners in light of future overseas expansion. We are          heighten their ability to execute. I would like to enhance
     In a changing society and global environment, the Nippon         activities that emphasize safety, the environment, and
                                                                                                                                         also hiring an increasing number of women. The number             the sense of unity in our Group by promoting personnel
     Soda Group aims to conduct management based on the               quality. From there, we developed CSR activities that are
                                                                                                                                         of employees with diverse educational backgrounds and             exchanges and standardizing paperwork between Nippon
     two concepts of increasing social value and increasing           based on social contribution.
                                                                                                                                         life experiences is increasing. Therefore, I believe that it is   Soda and each consolidated company, and among
     corporate value through business growth. At first glance, it        At present, ESG, which includes corporate governance
                                                                                                                                         necessary to cultivate a sense of unity and cooperation; for      consolidated companies.
     may seem contradictory to focus on improving business            in addition to CSR, is listed as an investment index. There
                                                                                                                                         example, facilitating the building of relationships by having
     efficiency while also considering the environment and            is now a need for corporate management from a broader
     providing value to society as a whole. However, if either of     perspective. As a matter of course, the Group is responding
     these concepts is not fully pursued, the Nippon Soda Group       to these changes in accordance with the Corporate
     will not be able to realize its management philosophy nor to     Governance Code. From 2020, to further enhance our
                                                                                                                                         Inheriting Tradition and Achieving New Growth through Change
     achieve its Long-Term Vision. It is important for the Nippon     governance activities, we have transitioned to a company
     Soda Group to expand businesses by developing the                with an audit and supervisory committee.                           Although 100 years is a major milestone, it is also just a        City in Toyama Prefecture, it is not uncommon for many
     products that will contribute to society, and in so doing lead      The same also applies to the Sustainable Development            point in time. As a company, it is important to continue          generations of the same family to work as employees for the
     to increased corporate value.                                    Goals (SDGs). The SDGs consist of 17 goals. Multiple goals         to grow while embracing new challenges. There is no               Nippon Soda’s Group. High loyalty to the Company is an
        Japanese chemical manufacturers have contributed to           can be applied to a company that engages in a range                guarantee that our business will continue just because            invaluable asset. We will continue to meet the expectations
     the development of the Japanese economy since the end            of business activities. This means that the appropriate            we have survived the last 100 years. In order to continue         of local communities and contribute to their development.
     of World War II. Conversely, these manufacturers are also        perspective must be implemented from the development               contributing to the creation of a sustainable society in which       We will respond to shareholders and investors by working
     responsible for causing environmental issues in conjunction      stage. The perspective cannot be incorporated at a later           each individual can live with peace of mind, all officers         to improve capital efficiency, with the aim of securing both
     with the growth of their businesses. For more than 20 years,     stage. Regardless of how outstanding or technologically            and employees must work together. We must all strive to           growth investment and returns to shareholders. With this in
     the Nippon Soda Group has been working on measures               innovative the developed product may be, we must never             increase corporate value while creating businesses and            mind, it is extremely important to use the three years of the
     as a manufacturer. One example is responsible care (RC)          overlook this perspective.                                         products that will contribute to society with the perspectives    new Medium-Term Business Plan to establish a firm foothold
                                                                                                                                         of SDGs and ESG.                                                  for achieving our Long-Term Vision. Based on the sense of
                                                                                                                                            In addition to the production technology that has been         urgency inherent in the expression “without change, there
     Reform of Employee Awareness is Essential for Achieving Goals                                                                       inherited as a company tradition, the relationships of trust      is no future,” the Nippon Soda Group will make the utmost
                                                                                                                                         that the Nippon Soda Group has cultivated with the local          efforts to achieve its goals.
                                                                                                                                         community are an important intangible asset. In areas                Please expect great things during the next 100 years of
     In addition to achieving our Long-Term Vision, it is most        these concepts, reflecting those concepts at the actual
                                                                                                                                         where factories are located, such as Nihongi City in Niigata      the Nippon Soda Group.
     important that we respond to social demands in areas such        business site, and working toward goals. We have set
                                                                                                                                         Prefecture (the birthplace of our company) and Takaoka
     as ESG and the SDGs by harnessing the power of each              ambitious goals in our Long-Term Vision. It is important that
     employee, making sure they understand the meaning of             all employees share the spirit of those goals and recognize
                                                                      their role in achieving the goals. In particular, I would like
                                                                      the employees who will guide us in the future era to work
                                                                      with the spirit of taking the initiative for laying a foundation
                                                                      for the next 100 years.                                                                                                                                    Representative Director, President
                                                                         Naturally, I will serve as a leader for the Nippon Soda
                                                                      Group. Creating an environment for all employees to work
                                                                      on this effort together is an important issue. In particular,
                                                                      in regards to human resource development, we have been
                                                                      reviewing the education system centered on OJT (on-the-
                                                                      job training) over the past four years, and are promoting a
                                                                      system to support career development. In this system, the
                                                                      employee and the Company work together to set goals for
                                                                      careers. If a business requires innovation, the organization
                                                                      also needs human resources who are capable of innovation.

08                                                                                                                                                                                                                                         Nippon Soda Group Integrated Report 2020   09
Nippon Soda Group Integrated Report 2020
Value Creation Model

           Based on our mission, “Create new value through the power of chemistry and increase corporate value by
           contributing to society,” the Nippon Soda Group will improve its corporate value and social value by providing
           chemicals and related services for resolving social issues, and will build value creation processes that achieve
           sustainable growth.
                                                                                                                                                                                                                                                           Local             Shareholders
                                                                                                                                                                                                      Customers                                         communities          and Investors
                                                                                                                                                                                                     Long-term trust                                     Safety and
                                                                                                                                                                                                                                     Fair               environmental            Increase
                                                                                                                                                                                                                                 transactions             protection               social

                                                                                                                                                                                                                                                P. 42

            Megatrends                            Input capital                                                                                                          Business activities                                                                                                          Output                                      Outcome

                                                 Financial capital                              Medium-Term Business Plan                                                                                                                                                                                 ROS
                                                                               Stage I          “Brilliance through Chemistry” Stage I P. 16 to 17
                                                                                                                                                                                                              Our Vision 10 Years in the Future
                                                                                                                                                                                                                  “Brilliance through                                                            10.0% or more                                    Mission
                                           · Ability to create stable                                                                                                                                                                                                   P. 18 to 23
                                                                                                              Numerical Targets
                                             cash flow                                                                                                                                                             Chemistry 2030”                                                                                                               P. 20 · 24-27
                                           · Resilient and healthy                                                                                                                                                                                                                                        ROA
                                                                                                                                                                                                                                                                                                                                         Create new value through the
                                                                                 Net profit                     ¥7.0 billion                                                                                        [Basic Strategy]
                                             financial structure                                                                                                                                                                                                                                  7.0% or more                          power of chemistry and increase
                                                                                                                                                                                                    Through growth investment that emphasizes ROI                                                                                       corporate value by contributing
                                           · Owned capital
                                                                                                                      5%                              Stage II     Stage III                    and thorough structural reforms, ”Transition to a Highly                                                                                          to society.
                                           	           ¥141.3 billion             ROE
                                                                                                                                                                                                Efficient Business Structure—Raise Our Profit Efficiency                                                  ROE
       Population growth                   	              (March 31, 2020)
                                                                                                                                                                                                        to More Than Double the Current Level”
          Increase in food and                                                                        ¥30.0 billion yen for new                                                                                                                                                                   8.0% or more
                                                                                  Capital             businesses and increased
            feed production
          and improvement of
                                            Manufacturing capital               expenditure
                                                                                                                                                                                                                            [Main Issues]                                                                                                       Agriculture
                                                                                                             production                                                                                    · Enhancement of cost competitiveness and efficiency                                 Expansion of high-
          production efficiency
                                           · Capital investment for                                                                                                                                        · Expansion of overseas businesses                                                 added-value businesses
                                                                                Shareholder          Dividend payout ratio 40%                                                                             ·P romotion of new product development and entry                                    and liquidation of                           Securing food and
         Global warming                      new businesses and                                      (However, the lower limit is an annual
                                                                                  return                                                                                                                     into new businesses                                                              unprofitable businesses                      sustainable agriculture
        Increase in the incidence            increased production                                        dividend of ¥80 per share)
            of crop pests and
                 diseases                  	             ¥30.0 billion                                                                                                                                                                                                                            Overseas sales ratio
                                           (Medium-Term Business Plan:                                                                                                                                                                                                                          Target for March 31, 2030

     Improvement in living                 Stage 1)
                                                                                                                          P. 12 to 13                                                                                                                                                                    40%
         Increased demand for                   Intellectual capital
          pharmaceuticals and                                                                                             A sincere and flexible                                                                                                                                                Sophistication of core
             improved QOL                  · Research and development                                                     organizational culture                                                                                                                                                   technologies
                                             for creating high added-
       Social security cost
              issues                         value products                                                                                                                                                                                                                                      Promotion of new
                                                                                                                                                                                                                                                                                               product development
            Increasing health              · Production technology /
      consciousness and awareness            Unique proprietary core                                                                                                                                                                            P. 14 to 15     Creating products               and entry into new
         of preventive medicine                                                                                                                                                                                                                                                                     businesses
                                             technology                                                                                                                                                                                                         with real value                                                           Healthy life to all people
                                           · Owned patents                                                                                                                                                      Agro Products                                                                 Providing products and
                                                                                                                                                     Chemicals                                                                                                                                  services required by
                                                                                                                                                                                                                                                                Research and
                                           	                     2,549                                                                              P. 30-33                                                      P. 34 to 37                                  development
                                                                                                                                                                                                                                                                                             customers and the social
         Achievement of                    	              (March 31, 2020)                                                                                          Agriculture                                                                                                             environment in the 2020s
      a sustainable society                                                                                                                                                                                                                                     capability
              Reduction of
         environmental burden
                                                                                                                                                                                                                                                                                                Responses to climate
          Building a resource                     Human capital                                                                                                                                                                                                                                    change issues
        recycling-based society
                                           · Number of employees
                                             (Consolidated):                                                                                                                                                                                                                                                                                   Environment
                                                                                                                                                                        ICT                 Environment                                                                                             Preservation of
                                                                 2,744                                                                                                                                                                                                                               biodiversity
                                                      (As of March 31, 2020)                                                                                                                                                                                                                                                                 Toward a resource
                                                                                                                                                                                                                                                                                                   Dialogue with                              recycling society
     Progress in information                       Social capital                                                                                                                                                                                                                               consumers, business
       and communication                                                                                                                                   Other                Other businesses               Trading                                                                           partners, and local
          technologies                     · Overseas sales ratio:                     P. 14 to 15                                                                                                                                                                                                 communities
     Popularization of smart devices                                                                                                                       P. 39                                                 P. 38
     Rising needs for technological                              33.4%                                                                                                                   Transportation
                                                                                                                                                                                               and                                                                                             Promotion of diversity,
               innovation                                                              Production technology                                                         Construction          Warehousing
                                                                                                                                                                                                                                                                                               work-life balance, and
                                                 Resource capital                      capabilities that create safety,                                                 P. 39                P. 38                                                                                                career program
                                                                                       security and stability
                                           · Energy consumption (in                                                                                                                                                                                                                          Hold constructive dialogue with
                                             crude oil equivalent)                                                                                                                                                                                                                           shareholders and investors, and
                                                                                                                                                                                                                                                                                             disclose information in a timely                        ICT
                                           	               93,100 kL                                                                                                                                                                                                                           and appropriate manner
                                             (Year ended March 31, 2020)
                                           * Nippon Soda (Non-consolidated)                                                                                                                                                                                                                                                                   Applying the
                                           · Amount of water                                                                                                                                                                                                                                      Enhancement of                             functionality of
                                                                                                                                                                                            Increasing Corporate Value                                                                         corporate governance
                                             consumption                                                                                                                                                                                                                                                                                  chemicals to IT devices
                                           16,700,000 tons                                          ESG Management
                                                (Year ended March 31, 2020)
                                                                                                                    P. 42 to 43                                                                                                                                                                      Promotion of
                                                   *Four domestic plants of                                                                                                                     Increasing Social Value                                                                               compliance
                                                    Nippon Soda                                                                                                                                                                                                                                      management

10      Nippon Soda Group Integrated Report 2020                                                                                                                                                                                                                                                                                Nippon Soda Group Integrated Report 2020   11
Nippon Soda Group Integrated Report 2020
Source of Value Creation—DNA of Nippon Soda

       The source of value creation at the Nippon Soda Group is found in our research and development, our technical
       capabilities that have responded to changing market demands with the times, and the human resources who have
       supported the aforementioned work. When thoroughly examining our achievements, you can see that the strength
       and concepts of our founding spirit have been inherited and continue to thrive.
          Even in today’s era of diverse change and the never-ending wave of issues, growth at the Nippon Soda Group is
       supported by our DNA of having confidence in our ability to determine the correct path forward without wavering
       from our convictions, and by our passion for research and technology aimed at solving difficult challenges one by one.

       Origin of the Company Emblem             The Company emblem for Nippon Soda is a snow rabbit. Specifically, it is a white hare surrounded by a hexagonal snowflake.
                                                The emblem is based on the following episode. In the winter of 1920, shortly after the Company’s founding, a meeting was
                                                being held at the Nihongi Plant in Niigata Prefecture in regards to the logo to be used on product containers. Suddenly, a
                                                pure white rabbit jumped into the room, ran around, and then disappeared outside.
                                                   At that time, our Company’s main products were caustic soda and bleaching powder. In the case of these products, a
                                                higher purity results in a purer white color. Therefore, the pure white rabbit represented the high quality of our products.
                                                Furthermore, rabbits excel at running up mountains but not running down. This was a perfect symbol of Nippon Soda at
                                                that time, in terms of how we were striving to become a growth company with high-quality chemical products that are not
                                                affected by recessions. The six sides of the hexagonal snowflake represent the following ideals: honesty, industriousness,
                                                originality & ingenuity, cooperation, service, and gratitude.
                                                   This is a perfect anecdote for Nihongi City, Niigata Prefecture, which receives some of the heaviest snowfall in Japan.
                                                Furthermore, this episode is linked to the world of chemistry, where facts, chance and ideas are all linked together.

                                                                                                                                                                                     Heritage from the History of Our Company
                        Although favorable conditions did not exist at the time of our founding,
                              we were able to overcome adversity thanks to our people.                                                                                         From our founding to the present, a large number of            forced to abandon the plan. The plan was ahead of its
       Nippon Soda was founded in 1920, a period of great recession after World War I. Furthermore, many more difficulties were                                                outstanding engineers have supported the growth of             time and was eventually recognized and highly evaluated
       lying ahead. Conversely, it was also an era when Japanese industry was heading for development. The unceasing efforts for                                               Nippon Soda and enabled us to come back from difficult         as having played a leading and enlightening role in the
       improvement, innovation, and research and development led to the development of today’s Nippon Soda Group. These                                                        predicaments. Of course, Nippon Soda contributed to            petrochemical industry.
                                                                                                                                                                               the rapid expansion of business in the era when the Nisso         After that, Japan entered a period of high economic
       efforts were supported by our people. The spirit of “Good people doing good work” is still alive even today.
                                                                                                                                                                               Konzern was formed in the 1930s. Afterwards, we were           growth. Even though Nippon Soda’s sales grew, we
                                                                                                                                                                               placed under military supervision as Japan moved toward        continually failed to secure profits due to the interest
          Words from our founder Tomonori Nakano                                                                                                                               World War II. We also experienced an era in which we were      burden associated with large capital investments. Under
                                                                                                                                                                               forced to respond to development requests in various fields.   these circumstances, engineers focused their research and
                    “In no way does the Nihongi area present any advantages for industry in terms of transportation, terrain,                                                  One such example was the construction and operation of         development in a new direction; namely, on fine chemicals
                                                                                                                                                                               a caustic soda and bleaching powder factory in Malaysia.       such as pesticides and polymer fields centered on urethane.
                    or supply and demand. Furthermore, during one-third of the year, the area suffers from heavy snow that
                                                                                                                                                                               There is an anecdote that says when the German airship         We promoted a shift from quantity to quality. These
                    completely buries homes. Shortly after our founding, Nippon Soda faced the Great Depression after World                                                    Zeppelin flew to Japan and landed in Kasumigaura City          efforts eventually led to the creation of high added-value
                                                                                                                                                                               (Ibaraki Prefecture), Nippon Soda was responsible for the      products. The products developed in this era included the
                    War I. There was no conglomerate backing our company. Indeed, Nippon Soda was founded in a very
                                                                                                                                                                               emergency supply of depleted high-purity hydrogen. At          long-selling large-volume product TOPSIN-M (thiophanate-
                    disadvantageous era. Nevertheless, we were blessed with one thing—the human element. Our employees                                                         that time, only Nippon Soda was able to supply such a large    methyl), which is used as a fungicide all over the world, and
                    joined together and worked with great devotion. Even though I was a managing director, the factory                                                         amount of high-purity hydrogen.                                the liquid polybutadiene NISSO-PB, which attracted the
                                                                                                                                                                                   After World War II, GHQ (Supreme Commander for the         attention of the industry due to the novelty of its proprietary
                    manager and I would don dirty clothes and crawl under the machines. We worked both day and night.
                                                                                                                                                                               Allied Powers) permitted Nippon Soda to restart through        manufacturing method and still enjoys expanding use
                    Thanks to these efforts, we were able to build outstanding products and launch them on the market. It                                                      division of the company. The Company continued to face         even today. Furthermore, we started producing the
                                                                                                                                                                               difficulties because it was not clear which products and       pharmaceutical additive NISSO HPC (hydroxypropyl
                    was also fortunate that we worked in the chemical industry, which had the highest demand of any industry
                                                                                                                                                                               business fields would replace munitions, and large-scale       cellulose) on a small scale.
                    in Japan. It can also be said that we possessed an exceptional spirit toward business and policy toward                                                    personnel reductions were necessary. However, even                The Nippon Soda Group has been willing to invest in
                    management.                                                                                                                                               under these circumstances, the Company was committed           technology even in difficult times, and our engineers have
                                                                                                                                                                               to launching new businesses. In 1950, we submitted             worked hard to develop new products, strengthen cost
                        The chemical industry must constantly adapt to advances in science and evolve into more efficient                                                      Japan’s first petrochemical business plan to the Ministry      competitiveness, establish overseas production technology,
                    methods. We have always maintained our commitment to improving and innovating our equipment and                                                            of International Trade and Industry (currently the Ministry    and reduce environmental burdens. This spirit has been
                                                                                                                                                                               of Economy, Trade and Industry). Our plan to produce           inherited as the DNA of the Group and is the driving force
                    operation, and to researching and industrializing new products. In some areas, our business moved ahead
                                                                                                                                                                               petrochemicals such as ethylene oxide and ethylene glycol      behind all that we have accomplished.
                    of the science. Even when the existence of our company was in danger due to extreme financial difficulties,                                                via the naphtha decomposition method was approved                 The Nippon Soda Group will “contribute to society
                                                                                                                                                                               by the Ministry of International Trade and Industry.           through the power of chemistry” and realize a future of
                    we actively encouraged these kinds of technological advancements. “Good people doing good work.” This
                                                                                                                                                                               Nevertheless, due to the pioneering nature of the plan,        “Brilliance through Chemistry” based on technological
                    was the greatest strength of Nippon Soda. As a result, we were able to overcome our inconvenient location,                                                 we were unable to receive financing from banks and were        capability and passion.
                    damage from snow, and industry stagnation. 

                                               “Celebrating the 20th Anniversary of Our Company” (Nippon Soda Company Newsletter; May 1940)

12   Nippon Soda Group Integrated Report 2020                                                                                                                                                                                                                            Nippon Soda Group Integrated Report 2020   13
Nippon Soda Group Integrated Report 2020
Source of Value Creation—Power of R&D and Production

        The Nippon Soda Group is embracing the challenge of creating new businesses that solve global issues. We have               Toward the Creation of New Themes
        positioned the four fields of agriculture, healthcare, environment, and ICT as priority fields. Based on the keywords
        of “fusion of knowledge,” “fusion of technology,” and “global,” our two core research institutes and the production
        technology research centers located in each plant serve as important bases that support value creation.                     Nippon Soda is constantly exploring new research themes. In                  Research Theme Selection Process
                                                                                                                                    2019, we established a Theme Council which cooperates closely

                                                                                                                                                                                                                                                                                         Discuss the progress of research
                                                                                                                                    with research departments and sales departments in order to

                                                                                                                                                                                                                                                Select theme (Theme Council)

                                                                                                                                                                                                                                                                                           (Theme Evaluation Meeting)
                                                                                                                                    review the possibility of commercialization while considering

                                                                                                                                                                                                                                                                                                                                    Business decision made
                                                                                                                                    market trends, etc. In this way, we decide on the selection of

                                                                                                                                                                                                                                                                                                                                       by management
                                                                                                                                                                                                                     Consider theme
                                                                                                                                    research themes. Regarding the progress of research, based on
                                                                                                                                    factors such as changes in the external environment, discussions
                                                                                                                                    are held on the continuation and acceleration of research at the
                                                                                                                                    Theme Evaluation Meeting.
                                                                                                                                       Moreover, we are promoting the search for future themes in
                                                                                                                                    collaboration with external institutions such as other industries
                                                                                                                                    and academia, based on the recognition that it is necessary
                                                                                                                                    to utilize not only internal resources but also external research
                                                                                                                                    resources and technologies.

                                                                                                                                    Toward the Application Development of Core Technologies

                                                                                                                                    The Nippon Soda Group possesses many excellent core
                                                                                                                                    technologies. However, when considering future market
                                                                                                                                    needs and changes in the social environment, it is essential to
                                                                                                                                    introduce new technologies, as well as to establish and further
                                                                                                                                    strengthen core technologies. Therefore, we will strengthen our
                                                                                                                                    technological marketing capabilities, broaden our assessment
                                                                                                                                    and understanding of new needs, and establish a system that
                                                                                                                                    can respond more flexibly.                                                                                                                                                              Introduction
                                                                                                                                                                                                                                                                                                                             of external
                  Research and Development                                                  Production                                  We analyze the patent trends of other companies and                                      marketing
                                                                                                                                    search for new possibilities while staying alert to trends in even
                                                                                                                                    more areas. For example, we examine whether or not there
               By effectively utilizing the fundamental
                 technologies and core technologies                         We have built a safe, stable, and efficient
                                                                                                                                    are any aspects of commercially available products that can be                                                                           Core
                                                                                                                                    substituted by the Group’s technology. On top of that, we will                                                                       technologies
                   that we have accumulated over                                production system It is based on                    create new value by improving and increasing the sophistication
                   the past 100 years, our research                             the development of proprietary                      of our proprietary technologies, and by developing new
              and development handles the following                          manufacturing technologies through                     technologies while cooperating with external parties.
                    three areas: 1) development of                             the repeated improvement of the
                  new products, 2) the technological                            production technology we have
                                                                                                                                    Promotion of Digital Transformation
               improvement of existing products, and                               cultivated over a century.
             3) the development of peripheral markets.
                                                                                                                                    Nippon Soda has launched an AI working group to consider                     construction of databases.
            The Odawara Research Center, which plays a central            We have production technology research centers at         various initiatives for digital transformation. In terms of                     In terms of production, Nippon Soda is working to rationalize
            role, promotes research and development centered on           our Nihongi, Takaoka, Mizushima, and Chiba plants. In     material development, we are striving to create a system for                 work, save labor, and create a system that will enhance safe and
            agrochemicals, while the Chiba Research Center conducts       addition to establishing mass production technology for   efficient research and development by introducing materials                  stable operation. We will also promote the development of AI
            research and development in the field of chemicals such as    newly developed products, we are engaged in various
                                                                                                                                    informatics* with the aim of using AI to strengthen data                     human resources that can support these technologies.
            functional materials and electronic materials.                technological developments and engineering research.
                                                                                                                                    science. Regarding the development of agrochemicals, we
                 In the development of agrochemicals, we                  For example, one of our strengths is how we improve
                                                                                                                                    have been working on machine learning for supporting the                     * Efforts in which informatics methods that utilize statistical analysis, etc., are used to
            are accumulating a track record of technological              existing production processes and develop proprietary
            improvements that will lead to the development of new         manufacturing technologies with high productivity in      creation of new chemicals. In order to further strengthen these                 search for new materials from a large amount of data

            products. The Nippon Soda Group possesses a research          collaboration with research departments.                  initiatives, we will proceed with digital transformation and the
            system that can advance all phases from basic research to         In 2019, in opening a new research building that
            field experiments. We have the major advantage of being       consolidates and integrates research facilities at the     COLUMN
            able to carry out highly efficient and swift research and     Takaoka Plant, we established a system to enable
            development, and product development that combines            efficient use of testing equipment and human research        MOF development together with Rikkyo University                           Passing on production technology
            evaluation and exploration.                                   resources. The Nippon Soda Group is also accelerating
                 For the development of chemical products, we have        product development by strengthening synergies with          In July 2020, as a result of an industry-academic collaborative project   Over a period of 100 years, the Nippon Soda Group has accumulated
            established an integrated system for all stages from the      manufacturing process knowledge and manufacturing            with Rikkyo University (group with Dr. Mao Minoura from the Chemistry     various production technologies and know-how. We believe that it is
            development of functional chemical products that make         know-how, and by improving operational efficiency.           Department of the College of Science), we were able to announce the       important to pass down technology and know-how while continuing
            full use of our proprietary technologies to research for          Each research center supports a safe and stable          development a new material with a metal-organic framework (MOF)           to make further improvements. Additionally, for more than 10 years
            commercialization and streamlined improvements.               production system and complies with all applicable laws      that is functional and porous. This new material is attracting great      now, we have provided opportunities for each technical department
                 Both of the aforementioned centers conduct research      and regulations, while paying attention to occupational      attention. The Nippon Soda Group has been developing agrochemicals        to cooperate and exchange information in the form of manufacturing
            and development in cooperation with various departments       safety and health.                                           using hydroxamic acid derivatives for many years. This technology was     process research meetings and production technology research
            such as marketing, technical services, and manufacturing,                                                                  also used in this industry-academic collaborative project. The mass       meetings. These meetings also provide an opportunity to discuss
            while working to improve the technological capabilities of                                                                 production of new MOFs with less environmental impact is expected.        production technology and are held throughout the entire Group.
            each department.                                                                                                           Our Group will promote industrial application.

 14   Nippon Soda Group Integrated Report 2020                                                                                                                                                                                                                                 Nippon Soda Group Integrated Report 2020                                      15
Nippon Soda Group Integrated Report 2020
Explanation of Strategy

                                                                                                                                                       efficient business structure.                                                             peripheral businesses. However, management decisions
                                                                                                                                                           From the perspective of the forecasted future demand                                  regarding the caustic potash business were made from the
                                                                                                                                                       and the investment required for maintenance and renewal                                   perspective of transforming to a highly efficient business
                                                                                                                                                       of equipment, there are products and businesses for which                                 structure, which is the basic strategy of the Long-Term Vision.
                                                                                                                                                       difficulty in achieving medium- to long-term growth is                                        In parallel with the liquidation of such unprofitable businesses,
                                                                                                                                                       expected, even though those products and businesses were                                  Stage I will include growth investment of ¥30 billion with the
                                                                            With a financial strategy that                                             developed according to market needs. In Stage I, the Nippon                               aim of achieving high profitability. The core of these initiatives
                                                                                                                                                       Soda Group will make decisions on the liquidation of such                                 is investment in equipment to increase production of the
                                                                            emphasizes investment efficiency,                                          products and businesses, thus making a major shift toward                                 pharmaceutical additive NISSO HPC and mass production
                                                                            we will aim for “Brilliance through                                        asset efficiency. In August 2020, we announced that we would                              equipment for the new fungicide MIGIWA (ipflufenoquin)
                                                                                                                                                       implement fundamental reforms to the business structure of                                at the Nihongi Plant. Furthermore, it also includes regular
                                                                            Chemistry.”                                                                the caustic potash business including the discontinuation of                              maintenance and renewal investment. Therefore, the capital
                                                                                                                                                       production. The caustic potash business started with production                           investment for Stage I will be quite large. These are investments
                                                                                                                                                       at the Nihongi Plant (Joetsu City, Niigata Prefecture) in 1929                            that will enable us to achieve restructuring into a highly efficient
                                                                            Kiyotaka Machii                                                            and supplied products for over 90 years while strengthening                               business, which is the subject of Stage I.

                                                                            Executive Managing Officer
                                                                            CSR Promotion, and Internal Control & Audit Dept.,
                                                                            Secretariat Dept., General Affairs Dept.,                                      Capital Policy in Stage I is Aggressive Investment for Growth and Shareholder Returns
                                                                            Finance & Accounting Dept.,
                                                                            Responsible Care Management Dept. and
                                                                            Manager, Trade Administration                                              As discussed above, the plan for Stage I calls for growth                                 payout ratio at 40%. Also, Nippon Soda set a dividend lower
                                                                                                                                                       investment of ¥30 billion. This is a significant increase from                            limit for the first time. During Stage I, the lower limit for the
                                                                                                                                                       the ¥10 billion in the previous medium-term business plan.                                annual dividend will be ¥80, regardless of earnings results.
                                                                                                                                                       However, I believe that this investment is necessary in order                             Furthermore, we began purchasing treasury shares to a
                                                                                                                                                       to steadily implement our strategy and achieve our Long-                                  maximum of ¥5 billion from February 2020. Moving forward, we
                                                                                                                                                       Term Vision. Furthermore, from the perspective of investment                              plan to proceed flexibly with implementation.
                                                                                                                                                       efficiency, we plan to reassess assets, including cross-held                                  Continuing on from the previous medium-term business
            Toward a Financial Strategy That Emphasizes Investment Efficiency                                                                          shares, and manage the balance sheet appropriately. Also,                                 plan, we are proceeding with efforts to identify issues and
                                                                                                                                                       in Stage I, we will take active measures to return profits to                             implement countermeasures by performing tree analysis
       During repeated discussions and reviews held when formulating          Looking at our shareholder composition, the ratio of foreign             shareholders. Previously, the shareholder return policy was                               of the ROIC (return on invested capital) index, and then to
       the Long-Term Vision “Brilliance through Chemistry 2030,” we           shareholders is increasing, and we need to respond to their              based on the total return ratio, which included the acquisition                           use the analysis results to improve ROE through continuous
       referred back to the previous medium-term business plan, as            demands.                                                                 of treasury stock. However, in Stage I we set the dividend                                improvement of profitability and efficiency in each department.
       well as to past management strategies and their results. By                First, in order to instill ROI orientation in the awareness of all
       doing so, we reconsidered what management indices require our          employees, we focused on the concept of ROA. In other words,                     Numerical Targets

       attention. Until now, we have been developing measures using           we will improve business operations from the perspective
                                                                                                                                                                                 Indices                                                         Numerical Targets (FY 2023)
       a P&L orientation that centered on sales and profit. However,          of whether or not assets are generating appropriate profits
       upon returning to the starting point for increasing corporate          from investment, and whether or not we are improving profits
       value, we arrived at the conclusion that the concept of “investing     through efficient utilization of assets. The result of these efforts                            Net profit                             ¥7.0 billion                                    (¥6.76 billion for FY 2020)
       and earning profits,” that is, ROI (return on investment), should      is improved ROE. Investment efficiency means we will revise
       be our basic strategy when formulating our Long-Term Vision.           our business and product portfolios from the perspective of
       We also decided on the need to execute measures based on               asset efficiency, and as we improve operational efficiency, our
       ROI to realize a management plan that provides the ROE (return         balance sheet will be streamlined, resulting in higher ROS and                                      ROE                                      5%                                             (4.8% for FY 2020)

       on equity) that is demanded by today’s economic society and            increasing ROA. Moreover, we will raise ROE by proactively
       by investors. We will divide the 10 years covered by the Long-         implementing policies that emphasize the balance between
       Term Vision into three parts. We will then formulate and execute       growth investment and shareholder returns, while giving                                                                                              Investing ¥30.0 billion in capital investment
                                                                                                                                                                      Capital expenditure
       medium-term business plans for each part based on activities           consideration to financial soundness. In “Brilliance through                                                                                        in new businesses and to increase production
       for improving ROI. Of course, unpredictable situations will arise.     Chemistry Stage I,” we plan to achieve ROE of 5%. Then, in our
       However, we will achieve improvements through trial and error.         Long-Term Vision, we will achieve an ROE of 8% in 10 years.                                                                                            Dividend payout ratio 40%
       Our final goals for 10 years in the future are ROS (operating          We seek to increase asset efficiency and manage the Company                             Shareholder returns
                                                                                                                                                                                                                   (However, the lower limit is an annual dividend of ¥80 per share)
       margin) of 10% or more, ROA (operating profit ÷ total assets) of       even more efficiently, thereby promoting a shift to a highly
       7% or more, and ROE of 8% or more.                                     efficient business structure and increasing corporate value.                     * Each department will improve ROIC (return on invested capital) by continually improving profitability and efficiency, thereby improving ROE.

            Stage I for Solidifying the Foundation of the Long-Term Vision                                                                                The first step of the current Long-Term Vision “Brilliance                             The capital policy in Stage I also incorporates unprecedented
                                                                                                                                                       through Chemistry 2030” is the Medium-Term Business Plan                                  shareholder return measures. First of all, in preparation for
       In the Long-Term Vision, the first Medium-Term Business Plan           will solidify our foundation for increasing corporate value.             “Brilliance through Chemistry Stage I.” The strategy of this                              achieving our goals over the three years, all officers and
       (FY 2021 to FY 2023) is entitled “Brilliance through Chemistry             In Stage I, we will begin by liquidating unprofitable                stage is clearly distinct from past management strategy, and                              employees will work together and reaffirm their conviction.
       Stage I.” As the first step in achieving our Long-Term Vision, we      businesses and establishing a system for adoption of a highly            indicates our strong aspiration and conviction as a corporation.

16   Nippon Soda Group Integrated Report 2020                                                                                                                                                                                                                                          Nippon Soda Group Integrated Report 2020   17
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